DP4671 Destination- versus Origin-based Commodity Taxation and the Location of Industry
|Author(s):||Kristian Behrens, Jonathan Hamilton, Gianmarco Ottaviano, Jacques-François Thisse|
|Publication Date:||October 2004|
|Keyword(s):||commodity tax, destination principle, home market effect, origin principle, tax harmonization|
|JEL(s):||F12, H22, H87, R12|
|Programme Areas:||Public Economics, International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4671|
This Paper studies the positive aspects of destination vs. origin principles of commodity taxation as well as tax harmonization, with an emphasis on the international implications of these measures when firms are mobile. We investigate the tax incidence of these two principles on price levels and uncover how taxes and trade costs interact. While under the destination principle an increase in the tax rate of a country always causes some firms to relocate to the other, this effect may get reversed under the origin principle when economic integration is deep enough, so that a tax increase leads to an inflow of capital.